Benchmark indices have dropped over 2% in the last five days, pushing the Sensex into negative territory year-to-date. However, market experts attributed the correction to technical factors and said the fundamental picture still looks good.
"On daily charts, the market has formed a bearish candle and it also holding lower top formation on intraday charts, which is broadly negative," said Shrikant Chouhan, Head Equity Research, Kotak Securities.
After Nifty Smallcap and other NSE indices slipped below the 50-SMA, the benchmark Nifty has also breached the 50-SMA on March 19 for the first time since November, indicating a short-term technical sell-off.
Additionally, concerns about premium valuations and the US Fed's delay in rate cuts due to higher-than-expected inflation have contributed to the domestic market correction, as seen in the upward trend of the dollar index.
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Investors are cautious ahead of the upcoming US Fed meeting for clues on a potential rate cycle reversal, while rising crude oil prices add to market concerns.
Additionally, the correction in domestic equities is influenced by year-end tax booking, prompting investors to secure gains following price appreciation. Investors are likely practicing tax-booking which involves selling losing positions to offset gains elsewhere for tax purposes.
Overall, the market fundamentals remain strong and the long-term trend is bullish, noted Shailesh Saraf, Founder of Value Stocks.
"The correction is quite strong in the last couple of days and we cannot see any strong buying interest emerging out of this. Plus, there are no strong global cues to support the correction. If Nifty violates 21,750, we expect to see some more pressure on the market. But the long-term trend is positive" said Kranthi Bathini of Wealthmills.
Also Read| Sensex, Nifty fall 1%, dragged by IT heavyweights; investors cautious ahead of Fed outcome
Technical view & Trading strategy
"We are of the view that the current market texture is weak but oversold hence we could expect one quick pullback rally from the current levels. For the day traders now, 21,900 and 72,300 would act as key resistance zones for Nifty and Sensex, respectively," said Shrikant Chouhan of Kotak Securities.
Below the same, the correction wave is likely to continue till 21,700-21,625 and 71,500-71,400, respectively. On the flip side, above 21,900 and 72,300 levels, the market could bounce back till 22000-22050 and 72500-72600 levels, Chouhan said, adding that the current market texture is volatile, hence level based trading would be the ideal strategy for the day-traders.
Analysts expect investors to avoid both panic selling or fresh buying at the moment.
"Investors should wait for the quarterly results which will give the outlook for FY25. Elections are also coming up. We are in a wait-and-watch situation," said Amish Shah, Research analyst, Taurus Corporate Advisory Services. The sentiment was echoed by Shailesh Saraf of Value Stocks.
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